India’s retail investors have played a heroic role but their resolve is being tested by market volatility

A tentative truce in West Asia may have mostly silenced the blasts of war, but the lifting smoke revealed a double choke of Hormuz, with even Iran’s oil trapped, like the exports of other Gulf countries.

As this US-Iran deadlock is proving harder to break than a level-headed analysis of it would suggest, the war’s impact on India’s economy might still be gaining in intensity.

The financial blow of an inflated oil-import bill can be absorbed by the government and its oil companies only up to a limit, after which its fiscal plan would come apart.

What may worry investors more are weak capital inflows amid a widened trade gap, which would likely lead to an even weaker rupee, pushing domestic prices up and foreign funds away.

In April so far, foreign equity investors have pulled out almost ₹44,000 crore, with the month’s index gains explained by the buying strength of retail investors and local vehicles investing on their behalf. In March, systematic investment plans drew ₹32,087 crore, up 24% from a year earlier and 8% from February.

April flows are unlikely to mark a reversal.

It suggests that market dips are viewed as a chance to stack up stocks for eventual gains after the current turmoil ends. To the extent this reveals the patience of a longer view that tunes out short-run noise, it signals maturity. But how long investors who entered the market after covid, a sizeable bulk, will wait for a durable uptrend is being put to test.

A revival in flows from abroad would lift indices, but that prospect is hard to count on. It is not just exchange-rate risk that has taken a toll on the market’s appeal among global players. In contrast with markets further east, India is said to lack not just ‘AI plays,’ but also reasonably priced shares in general, given how slowly the earnings of most firms are seen to be rising.

On Friday, JPMorgan downgraded Indian equities to ‘neutral,’ a day after Bernstein flagged risks to the economy’s emergence and HSBC went underweight on India, citing concerns of growth and corporate profitability.

Will retail investors tune out bearish outlooks and look ahead? It is hard to say. Even before the war, business results did not satisfactorily reflect India’s pace of GDP expansion. This anomaly could harden as a casualty of the US-Iran face-off over Hormuz. Supply snap-offs from the Gulf have already shown up in a few financial reports.

However, equity retains its broad allure as an investment class. The classic idea is to buy slivers of business profits, plenty of which are being generated even by industrial firms perceived as stodgy.

Stable dividends over the years could justify a buy-and-hold portfolio whose market value rises steadily rather than rapidly. Quick capital gains, after all, are not the only reason to acquire shares.

Of course, nobody would want to overpay. The ‘right’ price, though, could vary by investor aims. A price-earnings (PE) multiple of 20-plus could look steep if profits are not on a sharp incline but could still attract investors with a longer payback horizon.

By the same token, a highly patient market could also sustain higher PE ratios. No doubt, India has had post-covid bouts of asset inflation (recall the heady first half of 2024-25), but that doesn’t mean there’s nothing worth buying today.